Monday, December 12, 2016

It was another case of “so near, yet so far” for Brighton
and Hove Albion last season, as the Seagulls missed out on automatic promotion
to the Premier League only on goal difference, while a spate of untimely
injuries led to defeat in the play-off semi-finals by Sheffield Wednesday, who
had finished a full 15 points behind them in the league table.

Chairman Tony Bloom captured the feelings of the Albion
fans: “The 2015/16 season was one of the most remarkable and exciting in my 40
years as a Brighton and Hove Albion supporter. The team, under Chris Hughton’s
astute leadership, gave us a season to savour – and although we twice missed
out on taking that final step to the Premier League, it has laid the foundation
for our current season.”

This is the third time in the last four seasons that
Brighton have reached the Championship play-offs, only to fall in the semis.
This consistency on the pitch is all the more impressive, as it has been
achieved under different managers: Guy Poyet in 2013; Oscar Garcia in 2014; and
Hughton last year. The only blip came in 2015, when the club slipped back under
the far-from-flying Finn Sami Hyypia.

"Many Happy Returns"

Of course, for those with longer memories it is great news
that Brighton are still around to mount a challenge, given that they only
avoided dropping out of the Football League to the Conference by the skin of
their teeth in 1997 with a final day 1-1 draw at Hereford United.

There then followed years of struggle, exacerbated by the
problems of finding a suitable ground after the Goldstone was sold to property
developers, leading to exile in Kent and a ground share with Gillingham. The
club returned to Brighton two years later to the Withdean, an old council-owned
athletics stadium where the facilities were far from ideal.

It took 12 years, but finally Brighton moved to the magnificent
new Amex stadium in 2011, coinciding with promotion to the Championship. The
major investment required to build the stadium (and indeed a superb new
training centre) was funded by Bloom, a lifelong fan who became chairman.

He has continued to finance the club, as can be seen by the
2015/16 accounts, which revealed a massive £25.9 million loss, £15.4 million
worse than the previous season’s £10.4 million loss. To put that into
perspective, that means that Brighton lost more than £2 million a month or
around £500,000 every week.

The club said that this underlined Bloom’s commitment and in
particular the ambition to reach the Premier League, while the chairman himself
explained the strategy: “Our increased losses result directly from an ongoing
and growing investment in our playing squad.”

This explains the main reasons for the higher loss, as wages
shot up £6.7 million (33%) from £20.6 million to £27.4 million, while player
amortisation (the annual cost of transfer fees) also rose £1.4 million (60%)
from £2.4 million to £3.8 million. Moreover, the desire to retain players meant
that profit from player sales fell £7.5 million from £8.7 million to just £1.2
million.

In addition, other expenses also increased by £1.1 million
(7%) from £15.0 million to £16.0 million, largely due to higher costs
associated with running the stadium.

The sizeable cost growth more than offset the £1.0 million
(4%) increase in revenue from £23.7 million to £24.6 million, mainly due to
broadcasting income rising £0.9 million (18%) to £5.9 million, though
commercial income was also up £0.5 million (8%) to £9.4 million, driven by
catering and events. On the other hand, gate receipts fell £0.4 million (4%) to
£9.4 million, primarily due to no home cup ties.

Other operating income was up £0.4 million, thanks to other grants
received.

In fairness to Brighton, almost all clubs in the
Championship lose money and are reliant on owners’ funding. In 2014/15, the
last season where all clubs have published their accounts, losses were reported
by 18 of the 24 clubs – in stark contrast to the Premier League where the new
TV deal, allied with wage controls, has led to a surge in profitability.

The club that made most money in the Championship that
season were Blackpool – and their model is not one to be recommended, as it
culminated in relegation to League One. As Bloom noted, “Any Championship club without
parachute payments wishing to compete for promotion will inevitably make
significant losses.”

That said, Brighton’s loss of £26 million in 2015/16 is
likely to be one of the highest in the division. Only two clubs reported higher
deficits in 2014/15: Bournemouth £39 million, though their loss was inflated by
£9 million promotion payments and an £8 million fine for failing Financial Fair
Play (FFP); and Fulham £27 million, but this was impacted by £11 million of
exceptional impairment charges.

Brighton could have reduced their loss by accepting some of
the lucrative offers received for their top talents, but Bloom noted that the
club made a conscious decision “to retain our key players” and “not to cash in
on our key assets”.

Consequently, there were no significant player disposals in
the 2015/16 season, leading to only £1.2 million profits, probably driven by
additional clauses from earlier player sales, as the contingent receivables on
transfers have fallen from £2.1 million to £0.8 million in the latest accounts.
In comparison, £8.7 million was booked in the previous season, mainly from the
sales of Leo Ulloa to Leicester City and Will Buckley to Sunderland.

Although Championship clubs rarely sell players for big
bucks, at least compared to the Premier League, this was a useful money-spinner
for Brighton in 2014/15 with only four clubs generating more money from this
activity. In contrast, the 2015/16 profit of just over £1 million is likely to
be one of the smallest in the division.

Of course, losses are nothing new for Brighton. In fact, the
last time that they made a profit was back in 2007/08 – and that was less than
£1 million and only arose because of a £3.6 million exceptional credit, due to
a change in the accounting for the Falmer stadium expenses. Since then, the
club has made cumulative losses of £88 million.

Moreover, the losses have been growing. Since promotion to
the Championship, Brighton’s total losses have amounted to £71 million, averaging
£14 million a season. As finance and operations director David Jones confirmed,
“We’ve lost money every year we’ve been (at the Amex).”

Jones added, “While we’re getting a competitive team on the
pitch, we’re going to continue to lose money with the revenue streams that
we’ve got.” The difference with the top flight is colossal. Jones again, “If we
were in the Premier League, we would be able to be a sustainable business that
makes an annual profit.”

If they are not promoted, it will be interesting to see what
the board decides regarding player sales. Traditionally Brighton have made very
little from the transfer market , though there was a change in stance in
2013/14 when the club sold Liam Bridcutt to Sunderland and Ashley Barnes to
Burnley, followed by the even more profitable sales in 2014/15.

This summer Brighton could have made a lot of money if they
had accepted all the offers they received, e.g. Dale Stephens (Burnley), Lewis
Dunk (Fulham) and Anthony Knockaert (Newcastle United). That could have brought
in £15-20 million, though obviously would have damaged Brighton’s prospects of
promotion.

The current strategy is to “speculate to accumulate”, but as
Bloom has admitted, “It would be ridiculous for me or any owner to say that a
player is never for sale. There’s always a price for any player.”

Brighton’s strategy is more clearly seen by the club’s
alternative presentation of the profit and loss account, which highlights the
29% (£7 million) increase in the football budget in 2015/16.

Chief executive Paul Barber, who has overseen a “pretty
radical and dramatic programme of reducing our costs” explained the approach as
follows “It gives us more opportunity to put more into the football budget,
which should improve our chances of promotion.”

In this way, administrative and operational costs have been
cut by 22% since 2012, which has meant that Brighton’s different managers have
benefited from a significant increase in the football budget over this period
of around 134%, as it has grown from £13 million to £31 million.

Bloom praised his team for “ensuring we remain operationally
efficient”, but the reality is that Brighton’s underlying profitability has
still been getting worse, as seen by the reduction in EBITDA (Earnings Before
Interest, Depreciation and Amortisation).

This metric is considered to be an indicator of financial
health, as it strips out once-off profits from player trading and non-cash
items. It has been consistently negative at Brighton, but has declined in the
last eight years from minus £3 million in 2008 to minus £18 million in 2016.

Unsurprisingly, a negative EBITDA is far from uncommon in
the Championship with 21 clubs generating cash losses, though only Nottingham
Forest have worse underlying figures than Brighton. In stark contrast, in the
Premier League only one club reported a negative EBITDA, which is again
testament to the earning power in the top flight.

Brighton’s revenue surged from £7.5 million in 2011 to £24.6
million in 2016 following promotion from League One to the Championship,
exacerbated by what can be described as the "Amex effect" with gate receipts
being more than fourtimes as much as Withdean,
increasing from £2.3 million to £9.4 million.

In addition, the new stadium has brought more commercial
opportunities, leading to income climbing from £3.1 million to £9.4 million.
The club could negotiate better deals with sponsors in the higher division (up
from £0.8 million to £5.5 million), increase retail sales, e.g. from the
stadium megastore (up from £0.5 million to £1.3 million) and make more from
catering, i.e. pies and the famous Harveys beer (up from £35k to £1.3 million).

However, the growth since the first season back in the
Championship in 2012 is less impressive, amounting to just 11% (£2.5 million)
in four years. The fact is that it is difficult to substantially grow revenue
streams without another promotion to the top flight.

Brighton’s revenue of £25 million places them around 7th
highest in the Championship, but the clubs with the three highest revenues in
2014/15 (Norwich City, Fulham and Cardiff City ) were more than 60% higher with
£40-52 million.

Bloom is acutely aware of the challenge this poses: “Our
player budget is the highest it has ever been, so we have certainly invested,
but we absolutely can't compete financially with relegated clubs like QPR,
Burnley and Hull with their parachute payments.”

He’s not wrong, as two of the three clubs he named were
promoted back to the Premier League last season, once again proving that money
talks in football. Jones reiterated his chairman’s message, noting that this factor
“presents difficulties when trying to assemble a playing staff that can compete
with clubs coming down from the Premier League, whose TV parachute payments can
inflate their revenue to around £40 million.”

Excluding the impact of the parachute payments made to those
clubs relegated from the Premier League (£26 million in first year after
relegation) Brighton’s revenue would be one of the highest in the Championship.
This season the disparity between “the haves and the have nots” will be even
larger, as the relegated clubs include Newcastle United and Aston Villa.

Even Chris Hughton has commented on this hurdle, when
discussing Newcastle: “They’ve come down with parachute payments, they are a
massive club and they are doing their very best to make sure they go straight back
up again.”

The majority of Brighton’s revenue comes from the stadium
with gate receipts contributing 38%, up from 30% at Withdean, though this
is only just ahead of commercial income 38%, following the relatively higher
growth rate in the last few seasons. Broadcasting is up to 24%, though this is
much lower than the Premier League, where TV money accounts for 70-85% of total
revenue at half the clubs.

Clearly, Brighton are more reliant on match day income than
most. In fact, in 2014/15 only two clubs were more dependent on this revenue
stream: Nottingham Forest and Charlton Athletic.

Despite improved results on the pitch, gate receipts fell
for a second consecutive season, decreasing 4% (£0.4 million) from £9.8 million
to £9.4 million, largely due to a lack of home cup ties.

Nevertheless, this is still likely to be the highest match
day revenue in the Championship in 2015/16, as the only team ahead of them in
2014/15 was Norwich City, who were promoted to the Premier League last season. It
will be another story this year, due to the arrival in the second tier of
Newcastle and Villa with their large crowds.

Average attendance slipped slightly from 25,640 to 25,583,
partly due to the knock-on impact of the disappointing 2014/15 season, but this
was still the second highest in the Championship, only surpassed by Derby
County 29,663, though ahead of all three promoted clubs: Middlesbrough 24,627,
Hull City 17,199 and Burnley 16,709.

Since the move to the Amex, attendances had been steadily
rising from the 7,352 at Withdean, as the new stadium finally met latent local
demand for tickets. Brighton’s potential has been highlighted this season by
three games selling out (Norwich, Villa and Fulham). In fact, the club has in
excess of 22,000 season ticket holders and 1901 Club members.

Ticket prices are among the highest in the Championship.
According to the BBC’s Price of Football survey, Brighton has the second
highest cheapest season ticket (only below Norwich) and the third highest most
expensive season ticket (behind Ipswich and Fulham). However, the survey did
note that tickets include a travel subsidy to and from the ground for fans by
public transport or use of the park-and-ride option, valued at £4 per game for
adults.

It is also worth mentioning that Brighton supporters are
happier with their match day experience than any others according to a Football
League study, partly due to the magnificent facilities that are second to none,
including free wi-fi and VIP padded seats. The club is also good to away fans,
lighting the concourse in their colours and having their local beer on tap. The
only fly in the ointment is the appalling “service” from the dreaded Southern
Rail.

The good news is that the club froze most ticket prices in
2015/16 and have restricted price rises in 2016/17 to no more than a couple of
pounds per match. Barber said this was to reward fans for “the ongoing loyalty
and support they’ve shown to the club.”

Brighton’s broadcasting revenue rose 19% (£0.9 million) from
£4.9 million to £5.9 million in 2015/16, which was attributed to an increase in
the Football League basic distribution plus the club being shown more times on
live TV.

In the Championship most clubs receive the same annual sum
for TV, regardless of where they finish in the league, amounting to around £4
million of central distributions: £2.1 million from the Football League pool
and a £2.3 million solidarity payment from the Premier League. There are also
payments for each live TV game: £100,000 home; £10,000 away.

This might not sound much, but Barber argued, “TV income is
extremely important for all clubs, including ours”, adding, “without revenue
from Sky TV, ticket prices would go up.”

However, the clear importance of parachute payments is once
again highlighted in this revenue stream, greatly influencing the top nine
earners in 2014/15. Nevertheless, it should be noted that these payments are
not necessarily a panacea, e.g. Middlesbrough secured promotion last season,
even though their broadcasting income of £6 million was less than half the size
of those clubs boosted by parachutes.

Looking at the television distributions in the top flight,
the massive financial chasm between England’s top two leagues becomes evident
with Premier League clubs receiving between £67 million and £101 million in
2015/16, compared to the £4 million in the Championship. In other words, it
would take a Championship club more than 15 years to earn the same amount as
the bottom placed club in the Premier League.

The size of the prize goes a long way towards explaining the
loss-making behaviour of many Championship clubs. This is even more the case
with the new TV deal that started in 2016/17, which Barber described as
“astonishing”. This will be worth an additional £35-60 million a year to each
club depending on where they finish in the table.

Even if a club were to finish last in their first season in
the top flight and go straight back down, their TV revenue would increase by an
amazing £95 million. They would also receive a further £71 million in parachute
payments, giving additional funds of around £166 million. If they survived
another season, you could throw in another £120 million.

Of course, if they did go up, Brighton would also have to
spend more to strengthen their playing squad, but the net impact on the club’s
finances would undoubtedly be positive, as evidenced by the improvement in the
bottom line for those clubs promoted in the past few seasons.

As we have seen, parachute payments make a significant
difference to a club’s revenue and therefore its spending power in the
Championship. From this season, these will be even higher, though clubs will
only receive parachute payments for three seasons after relegation. My estimate
is £83 million, based on the percentages advised by the Premier League: year 1 –
55%, year 2 – 45% and year 3 – 20%.

The other point worth emphasising is that if a club is
relegated after only one season in the Premier League, it will only benefit
from parachute payments for two years.

There are some arguments in favour of these payments, namely
that it encourages clubs promoted to the Premier League to invest to compete,
safe in the knowledge that if the worst happens and they do end up relegated at
the end of the season, then there is a safety net. However, they do undoubtedly
create a significant revenue disadvantage in the Championship for clubs like
Brighton.

Commercial income grew by 5% (£0.5 million) from £8.9
million to £9.4 million, comprising commercial sponsorship and advertising £5.5
million, catering and events £1.3 million, retail £1.3 million, academy grant
£0.9 million, other income £0.3 million and women and girls £0.1 million. The
main driver for the growth was a £0.4 million increase in catering and events,
primarily as a result of the Rugby World Cup matches hosted at the Amex.

In the new world of FFP, Bloom has said that the club “had
to adapt and move quickly to establish a sharper commercial focus. We had to
focus on the inherent value of our brand.” The club’s success in this area is
reflected by Brighton having one of the highest commercial revenues in the
Championship, only behind Norwich City and Leeds United in 2014/15.

This is despite the fact that Brighton now only report the
net catering commission in revenue, whereas in previous seasons all the gross
revenue was included in revenue with the expenses shown in costs.

"Back on the Shane gang"

What has been particularly impressive in recent years is the
increase in sponsorship, though it remained static in 2015/16, largely due to
the contractual cycles. American Express are not only shirt sponsors, but also
naming rights partner for the stadium and the training ground. This multi-year
agreement, signed in March 2013, was described by Barber as “the biggest in the
club’s history.”

Interestingly, the club has applied for planning permission
for a 150 room hotel alongside the stadium, though the City Council has to date
rejected the application. Barber said that this “would have been a valuable
addition to our non-matchday revenue.” They remain “hopeful of a successful
outcome”, which is just as well as they have to date spent over £2 million on
this development.

Brighton’s wage bill shot up by 33% (£6.7 million) from
£20.6 million to £27.4 million in 2015/16, “in order to be as competitive
possible and give ourselves the best possible chance of success on the pitch.” This
would have included high wages for the returning Bobby Zamora, even though he
arrived on a free transfer.

It is worth noting that since 2012, the first year back in
the Championship, the wage bill has grown by £12.7 million (87%), while revenue
has only increased by £2.5 million (11%).

This is all seen on the pitch, given the significant
reduction in administrative and operational expenses. For example, in 2015/16
the number of players rose from 61 to 73, while other staff were flat at 197.

Despite this growth, Brighton’s £27 million wage bill is
still only the eighth highest in the Championship, so promotion would indeed be
a fine achievement. As a comparative, the top three in the Championship in
2014/15 were Norwich City £51 million, Cardiff City £42 million and Fulham £37
million.

Barber understands this challenge: “We haven’t got anywhere
near the biggest budget in the division. We’re probably 10th or 11th. So we’ve
had to spend wisely, and eke out every ounce of value from every deal.”

That said, it would be no surprise if Brighton’s wage bill
further rose this season, as they have been extending contracts for a number of
important individuals, including Hughton, Beram Kayel, Solly March and Conor
Goldson, though this will ensure a decent price if they are sold.

The remuneration for the highest paid director, who is not
named, but is surely Paul Barber, has increased from £558k to £578k. This is a
lot of money, but Barber is really a
Premier League level chief executive, who has been pretty successful in cutting
operational expenses and renegotiating many of the sponsorships.

Brighton’s wages to turnover ratio increased (worsened) from
87% to 111%, the highest since 2009 when the club was in League One. This is
not exactly great, but it is by no means one of the highest in the
Championship. In 2014/15 no fewer than 11 clubs “boasted” a wages to turnover
ratio above 100% with the worst offenders being Bournemouth 237%, Brentford
178% and Nottingham Forest 170%.

The (relatively) prudent approach is evidently the one that
Brighton want to follow, especially in a FFP world, as noted by Bloom: “While
we do want to play at the highest level, we cannot simply open our cheque book
and start spending without care or attention.”

Other expenses rose by 7% (£1.1 million) from £15.0 million
to £16.0 million, which is by far the highest in the Championship, ahead of
Fulham £13.4 million and Leeds United £12.6 million.

This is the other side of the coin of moving to the Amex, as
this year’s increase was largely due to stadium expenses: maintenance, running
costs and security. There are also some costs that are exclusive to Brighton,
as Barber note, “The contribution that the club makes to the cost of travel has
grown, meaning that we have a large seven-figure transport bill that other
clubs don’t have.”

Non-cash expenses have also been on the rise with
depreciation and player amortisation increasing from just £237k in 2009 to £8.7
million in 2016, reflecting the club’s investment in infrastructure and the
playing squad.

In 2015/16 depreciation was unchanged at £4.9 million, which
is more than twice as much as any other club in the Championship, the next
highest being Derby County £2.1 million. This represents the annual charge of
writing-off the cost of the stadium and the training ground. These are
depreciated over 50 years, i.e. 2% of cost per annum.

Player amortisation was 60% (£1.4 million) higher at £3.8
million, following the strengthening of the squad, but this not out of the norm
in the Championship. The highest player amortisation in 2014/15 was found at
clubs recently relegated from the Premier League, namely Norwich £13 million,
Cardiff £11 million and Fulham £11 million.

However, to place this into perspective, even these clubs
are miles behind the really big spenders in the top tier like Manchester City
(£94 million) and Manchester United (£88 million). This is partly because there
is no amortisation required for those players who have been developed at the
Academy, e.g. Dunk and March in Albion’s case.

The accounting for player trading is fairly technical, but
it is important to grasp how it works to really understand a football club’s
accounts. The fundamental point is that when a club purchases a player the
transfer fee is not fully expensed in the year of purchase, but the cost is
written-off evenly over the length of the player’s contract, e.g. Irish
international defender Shane Duffy was bought from Blackburn Rovers for a
reported £4 million on a four-year deal, so the annual amortisation in the accounts
for him is £1 million.

Over the years, Brighton have not been a big player in the
transfer market, often registering net sales, though they have increased their
gross spend recently, averaging £5.6 million in the last two seasons, compared
to just £0.9 million over the previous nine seasons.

It is striking that there have been no meaningful sales in
this period, as Barber explained, “Our key objective this summer was to retain
our best players which, despite a lot interest and a number of offers for different
players in our squad, we have managed to do.”

They also wanted to strengthen the squad in key areas this
summer, so recruited Shane Duffy and Oliver Norwood, who made a good impression
at the Euros with the Republic of Ireland and Northern Ireland, and the
returning Steve Sidwell. They have also made good use of the loan market,
bringing in prolific goal scorer Glenn Murray from Bournemouth and full-back
Sebastien Pocognoli from West Brom.

"A French Kiss in the Chaos"

Last season they also bought well with Anthony Knockaert,
Tomer Hemed, Jiri Skalak, Conor Goldson, Liam Rosenior, Jamie Murphy, Gaetan
Bong and Uwe Hünemeier all making decent contributions.

However, it is apparent that Brighton have not gone
overboard in terms of spending, especially compared to some of their principal
rivals who are really “going for it”. To illustrate this, in the last two
seasons Brighton had net spend of 11 million, while they were comfortably outspent
by Derby County £26 million, Norwich City £23 million and Sheffield Wednesday
£21 million.

Not to mention Aston Villa and Newcastle United who have
somehow found themselves in the Championship despite substantial net spend of
£47 million and £43 million respectively. As Hughton said, “There are big
spenders in this division. We can’t compete with what Newcastle and Aston Villa
are doing. What we have done has been sensible.”

Therefore, Brighton have to box clever, as Bloom explained:
“There are other clubs in the division who have spent significantly more than
us. So we just have to make sure we recruit smarter and that the team dynamic
overcomes the financial disadvantage we've got against certain other clubs.”

Although holding onto players was clearly the strategy for this season, Bloom recently indicated at a fans’ forum that things might be different next season, so this may well be Brighton’s best opportunity to get promotion.

Brighton’s net debt rose by £25.6 million from £140.5
million to £166.1 million with the £23.0 million increase in gross debt to
£170.6 million compounded by cash falling by £2.6 million to £4.5 million.

Debt has been rising over the past few years, so much so
that Brighton now have the largest debt in the Championship, substantially more
than other clubs, e.g. Cardiff City £116 million, Blackburn Rovers £104 million
and Ipswich Town £88 million. However, it is entirely owed to Bloom, is
interest-free and can be regarded as the friendliest of debt.

The cash flow statement reveals that Bloom has also
converted £22 million of loans into share capital, including £11 million in
2015/16, which means that Bloom actually stumped up £34 million last season. Furthermore,
since the accounts were published, he converted an additional £8 million of
loans into shares, i.e. a running total of £30 million.

Adding the £80 million that Bloom has funded via share
capital (including the debt conversions) to the £171 million of debt means that
Bloom has put in a total of £251 million – that’s a cool quarter of a billion.

Just pause to let that sink in for a moment. One. Quarter.
Of. A. Billion. Pounds.

As David Jones commented, “That’s a massive amount of money
for an owner to have to subsidise a club for. And when you consider we’ve got
one of the highest two or three attendances in the Championship, some of the
best sponsorship deals, we’re still needing the owner to help us with that kind
of subsidy. It’s substantial.”

Looking at how Brighton have used these funds since Bloom
took charge, the majority (£155 million) has gone on investment into
infrastructure (including £103 million on the stadium and £32 million on the
training centre), while £83 million has been used to bankroll operating losses.
Hardly any money was spent on new players in this period with a net outlay of
less than £5 million.

There were a couple of interesting corporate actions after
the accounts closed. Authorised share capital was doubled from £100 million to
£200 million – potentially paving the way for a significant debt conversion? In
addition, the club created £40 million of Convertible Unsecured Loan Notes.

Being so dependent on one individual can be a concern, but
Bloom comes from a family of Brighton supporters: “I have absolutely no
intention of selling. I think I will be here for many years to come.”

"Hands Held High"

He continued: “Our ambition remains for the club’s teams,
both men and women, to play at the highest level possible – and as chairman
(and a lifelong supporter of the club) I will do everything I possibly can to
achieve that and I remain fully committed to that goal.”

Bloom is seriously wealthy from his property and investment
portfolio (plus money earned from poker and other forms of gambling), but
Brighton are very fortunate to have such a generous benefactor.

As Jones said, “If you’re an ambitious Championship club and
you don’t have the benefit of parachute payments, then you’re going to need an
owner that’s prepared to subsidise you substantially.”

"Sound Czech"

However, Bloom would not be able to simply buy success, even
if he wanted to, as Brighton need to follow the Football League’s FFP
regulations. Under the new rules, losses will be calculated over a rolling
three-year period up to a maximum of £39 million, i.e. an annual average of £13
million, assuming that any losses in excess of £5 million are covered by owners
injecting equity (hence the £8 million debt conversion in July 2016).

These limits are much higher than the previous £6 million a
season, so are likely to encourage clubs to spend even more, making the division
even more competitive.

Brighton have confirmed that they will comply with these
rules in 2015/16 (“as we have done each season”), which might seem strange, given that the
reported £26 million loss was twice the £13 million limit.

"Another Dale in my heart"

This is because FFP losses are not the same as the published
accounts, as clubs are permitted to exclude some costs, such as depreciation, youth
development, community schemes and any promotion-related bonuses.

Brighton’s depreciation was £5 million, which implies that
they have spent £8 million on their academy and the community in order that the
FFP loss was lower than the £13 million limit in 2015/16. Even though these
activities represent a major investment for the Albion, it seems unlikely that
the expenditure would be that high, but it is difficult to see how else the club could have complied.

Going forward, the assessment is calculated over a three-year period, which means that a higher loss one year can
be compensated in later years, e.g. via player sales, or might even become
irrelevant (if the club is promoted).

Either way, Bloom was right when he said it is “a delicate
balancing act for the board, as we strive to achieve our ultimate aim.”

"Spanish Steps"

The last time Brighton were in the top flight was way back
in 1983, but this club is clearly ready for the Premier League. As Bloom said,
“That’s what we built the stadium for, that’s what we built our magnificent
training ground for.”

Bloom appears just as happy with the situation on the pitch:
“To compete at the top end of the Championship, it’s important to have a manager
who knows how to win at this level and to possess a strong group of quality
players. We have both, and while this doe not guarantee promotion, it gives us
an excellent chance.”

Given what happened last season, nobody at the Amex is
taking anything for granted. Barber spoke for everyone: “We’ve made a really
strong start. But we also know that this is the toughest division in the world
and that nothing has been achieved at this point.”

Tuesday, December 6, 2016

Bayern Munich won the double of the Bundesliga and the
German Cup in 2015/16, obviously a fine feat, but not that surprising for
Germany’s most successful club. In total, the Bavarians have won the league no
fewer than 26 times and the cup on 18 occasions, though Karl-Heinz Rummenigge
said that it was still a “historic achievement” to top the Bundesliga four
years in a row.

The Bayern chairman was impressed: “If I were to assign
grades for the 2015/16 season, I’d give the coach and the team an A. Even in
our greatest eras we were lucky to win the championship three times on the
bounce at the most.” He added, “The days of FC Hollywood are over – and that’s
good. We make headlines on the pitch now.”

The story was almost as good in Europe. Rummenigge again,
this time on the Champions League: “We’ve advanced to the last four for the
fifth time in a row. That too is unprecedented in terms of continuity at FC
Bayern.” Indeed, in that period Bayern have reached the final twice and won the
trophy in 2012/13 by beating Borussia Dortmund at Wembley.

However, the traditional giants are showing some signs of
vulnerability this season after Pep Guardiola departed for a new challenge with
Manchester City in the Premier League to be replaced by experienced Italian
manager, Carlo Ancelotti. Guardiola won seven trophies in his three years in
Germany, including two doubles, but Ancelotti’s team has not had things all
their own way this season.

They currently sit behind newly promoted RB Leipzig in the
Bundesliga and have failed to top their Champions League group following an
embarrassing 3-2 defeat at Russian minnows FC Rostov. As Rummenigge admitted,
“A new era is about to begin. Everyone has chased us over the last few years.
Now we’re doing the chasing!”

"Radio, Radio"

Off the pitch, Bayern’s dominance remains unchallenged, as
they have just announced record profits and revenue for the 2015/16 season. Profit
before tax shot up by €23 million (72%) from €31 million to €54 million, though
profit after tax “only” rose by €9 million (39%) from €24 million to €33
million, due to a higher €21 million tax charge.

Revenue increased by a massive €118 million (25%) from €474
million to €592 million, just shy of the €600 million threshold. All revenue
streams grew, though commercial income led the way, increasing by €65 million
(23%) from €278 million to €343 million, driven by sponsorship, up €56 million
(49%) to €170 million, and merchandising, up €6 million (6%) to €108 million.

Broadcasting income actually rose more in percentage terms
(39%) or by €42 million from €106 million to €148 million with the growth split
fairly evenly between the Bundesliga (€21 million) and the Champions League (€16
million). Match day income was up €12 million (13%) to go above €100 million
for the first time (€102 million).

However, much of the revenue growth was eaten up by a rise
in expenses. Wages increased by €33 million (15%) from €227 million to €260
million, while other expenses rose €39 million (25%) from €185 million to €224
million and player amortisation was up €9 million (15%) to €70 million.

Player sales also fell €15 million from €50 million to €35
million. Incidentally, I am using the Deloitte definition of revenue here in
order to facilitate comparisons with other European clubs, so have excluded this
€35 million of transfer income. Adding this to my revenue of €592 million gives
the €627 million announced in Bayern’s press release.

As another technical aside, note that these are the
consolidated group accounts for FC Bayern München AG, which include the Allianz
Arena München Stadion GmbH and other subsidiaries.

Whichever way you look at it, deputy chairman Jan-Christian Dreesen
was justifiably proud of these results: “The 2015/16 fiscal year has been
fantastic for FC Bayern, in terms of both sports and finances.”

Of course, making money is nothing new to Bayern Munich, as
this is the 24th year in a row that they have been profitable.
Traditionally, the club invests almost all of its profits into the squad or
stadium development, but their profits have been steadily rising recently,
averaging €37 million over the last three years (before tax).

Rummenigge boasted, “This combination is what makes FCB
unique. We have the greatest success in our sporting endeavours, and we pay for
it all by ourselves.”

That’s very impressive, though it should be noted that it is
far from unusual for German clubs to make profits. In fact, 11 out of 18
Bundesliga clubs were in the black in 2014/15 (with 13 of 18 profitable in the
preceding season).

Indeed, many of Bayern’s rivals across Europe have also
posted large profits in recent times, e.g. in 2015/16 Manchester United
reported a pre-tax profit of €59 million (at a Euro exchange rate of 1.20),
Real Madrid €43 million and Barcelona €36 million. Moreover, these are not
necessarily “flash in the pan” performances, as Real Madrid and Arsenal have
been profitable since 2002, while Barcelona have reported profits the last five
years.

One factor behind Bayern’s growing profits is that they now
make more money from player sales, averaging €42 million in the last three
seasons, compared to just a €13 million average in the previous seven seasons.

The 2015/16 player sales of €35 million included the sale of
Xherdan Shaqiri to Inter €15 million, Sebastian Rode to Dortmund €12 million,
Bastian Schweinsteiger to Manchester United €9 million and Dante to Wolfsburg
€4.5 million. The previous season was even better at €50 million, thanks to
selling Toni Kroos to Real Madrid €30 million and Mario Mandzukic to Atletico
Madrid €22 million.

Next year’s accounts should also include a reasonable
contribution from player sales following Mario Götze’s €22 million return to
Dortmund plus Pierre-Emile Hojberg’s move to Southampton €15 million.

Bayern highlighted the growth in EBITDA (Earnings Before
Interest, Taxation, Depreciation and Amortisation), which rose by €31 million
(28%) from €111 million to €143 million. This has more than doubled from the
recent low of €69 million in 2011.

It should be noted that Bayern’s definition includes
transfer income, but the growth was even better using the more generally
accepted definition of recurring income, i.e. excluding lumpy profits from
player sales. This metric improved by €46 million (75%) from €62 million to
€108 million.

That’s very good, but to place it into perspective,
Manchester United announced 2015/16 EBITDA of €230 million, i.e. more than
twice as much, so it’s not surprising that they could pay so much money for
Schweinsteiger and still leave him in the stands.

Despite a blip in 2014/15, due to the lack of competing in the
UEFA Super Cup and FIFA Club World Cup, Bayern’s revenue growth has been mighty
impressive, as the €302 million increase since 2009 means that the revenue has
more than doubled in the last seven years.

Over 60% (€183 million) of that growth has come from
commercial operations, largely sponsorship (€97 million) and merchandising (€71
million), but the two other principal revenue streams have also shot up:
broadcasting by €78 million (112%) and match day by €41 million (68%).

In Germany Bayern’s revenue places them in a league of their
own. Not only is the gap large, but it is getting larger. Since 2009, their
closest challenger, Borussia Dortmund, managed to grow their revenue by an
impressive €179 million, but this was still €123 million less than Bayern’s
growth in this period.

The situation is even worse for the other German clubs.
Since 2009 Schalke have only grown revenue by €95 million, while Stuttgart’s
revenue was flat and Hamburg’s actually fell. This has resulted in Germany only
having three clubs in the Money League top 20, compared to five clubs in 2009.
This has inevitably led to concerns that Bayern’s financial supremacy will be
bad for competition in Germany.

It’s a different story in Europe with Bayern battling to
keep pace with the other elite clubs. Indeed in 2014/15 Bayern actually slipped
two places in the Money League to fifth, their lowest position since the
2006/07 season. However, it should be noted that Bayern are one of only three
clubs to be ever present in Deloitte’s annual rankings.

Bayern found themselves around €100 million behind Real
Madrid and Barcelona, so the significant 2015/16 revenue growth was required to
keep up with the Spanish giants, not to mention repelling the threat of the
newer clubs like Paris Saint-Germain and Manchester City, who sandwiched Bayern
in last year’s table.

For 2015/16, on a like-for-like basis, Bayern’s growth to
€592 million has made inroads into the top clubs’ advantage. Real Madrid still
lead the way with €620 million, though this is only €28 million ahead of
Bayern, closely followed by Manchester United €618 million and Barcelona €612
million.

We should make clear the importance of exchange rates here,
as I have used €1.20 to the £, while it is entirely possible that Deloitte
might use an average 2015/16 rate of around €1.30 when they publish the next
edition of the Money League, which would obviously have a favourable impact on Manchester
United’s Euro figures.

Returning to the 2014/15 Money League, if we compare
Bayern’s revenue with the other clubs in the top ten, we can see that they
enjoy a substantial commercial advantage over almost all clubs, but they are
lagging behind in broadcasting income.

As we have seen, this already rose significantly in 2015/16,
while there is further scope for improvement in this revenue stream from the
new Bundesliga TV deal starting in 2017/18, which should be worth at least an
additional €30 million to Bayern.

From a domestic perspective, Bayern’s gap to the second club
(Borussia Dortmund) was €193 million in 2014/15, which was only surpassed in
France, where PSG were €371 million ahead of Marseille. However, the gap is
much smaller in Italy, England and Spain.

Moreover, the gap to the 3rd placed club in Germany
(Schalke) was€254 million, which is a
huge competitive advantage. This is much more than the gaps in England and
Italy, though the difference is even higher in Spain and France.

Following Bayern’s impressive 2015/16 revenue growth, the
gap to Dortmund has now widened to an astonishing €307 million: €592 million
vs. €285 million. In other words, Bayern now earn more than twice as much as
their closest domestic competitor.

As we have seen, the largest revenue category at Bayern is
commercial income, which accounts for more than broadcasting and match day
combined. That said, commercial’s share of 58% has dropped from the 60% peak
two years ago, thanks to the growth in broadcasting taking that category’s
share up to 25%. As a consequence, match day has diminished in importance to
just 17%, even though it does bring in more than €100 million.

Only one other club in the Money League top 20 had
commercial income contributing more than Bayern, namely Paris Saint-Germain
with 62%, thanks to the French club’s “innovative” deal with the Qatar Tourism
Authority, which is apparently worth €200 million.

Indeed PSG was the only club with higher commercial revenue
than Bayern with €297 million, though Bayern were ahead of clubs like Manchester
United €264 million, Real Madrid €247 million and Barcelona €244 million.

And that was before Bayern’s 2015/16 growth in commercial revenue
from €278 million to €343 million, comprising sponsoring and marketing €170
million, merchandising €108 million, Allianz Arena €39 million and other
commercial activities €26 million. Bayern do have the advantage of being the
most supported team in the largest commercial market in Europe, but that’s
still some going.

Although commercial deals are very important to all German
clubs, Bayern still earn significantly more than the others. In fact, the
commercial gap to Dortmund, which had narrowed in 2014/15, rose to €191 million
last season, the highest ever difference between the two.

Bayern’s returning president Uli Hoeness said that Dortmund
would need to have a more consistent track record of winning trophies if they
hoped to match Bayern’s global appeal, but that is a tough ask, given their
revenue shortfall.

Bayern have been boosted by strategic partnerships with
three major German companies (Adidas, Allianz and Audi), who all have an 8.33%
stake in the club with the other 75% owned by the fans.

Adidas has a long-standing relationship with Bayern,
extending their kit deal in 2015 until 2030, even though it had a further five
years to run. This was for a reported €900 million, which is worth €60 million
a season, up from the previous €25 million. Allianz have also extended their
stadium naming rights deal for a further five years to 2041 at around €6
million a season, while Audi is a main sponsor and automotive partner.

That’s great news, but it is still far below Manchester
United’s €90 million deal with Adidas (and, for that matter, the new kit deals
at Real Madrid and Barcelona, which are worth€120-150 million according to various press reports). On the other hand,
it is considerably higher than Dortmund’s latest kit deal with Puma, which is
worth only €15 million.

In addition, Deutsche Telekom have extended their long-running
shirt sponsorship deal, first established in 2002, to 2023, reportedly
increasing the annual fee to €30 million (though some reports have this as high
as €35 million).

Although the highest in Germany, It’s a fair way behind
other leading European clubs, e.g. Manchester United’s Chevrolet deal is worth
around €70 million, while Barcelona have just signed an agreement with Rakuten
for €55 million.

As well as Bayern’s four main partners, the club also has a
raft of other big name partners, split between 9 platinum, 5 gold and 11 official,
including DHL, Gigaset, Goodyear, Hypovereinsbank, Lufthansa, SAP, Paulaner Coca-Cola
and Giorgio Armani.

"Mats Entertainment"

The Allianz Arena is another major money-spinner for Bayern.
They initially shared ownership with TSV 1860 Munich, but have fully owned the
venue since 2006, leasing it back to their former partners since then. As well
as annual stadium naming rights of €6 million, Bayern benefits from all other
activities staged at the Arena, including concerts and German national team
matches.

Perhaps the most staggering figure is from merchandising
sales, which has nearly tripled since 2009 to €108 million. This means that nearly a
fifth of Bayern’s revenue is generated by shirt sales and the like. In fact, according
to consultants PR Marketing, Bayern have averaged sales of 1.2 million replica
shirts in the last five years, a figure only surpassed by Manchester United,
Real Madrid and Barcelona.

Internationalisation is a key element of Bayern’s plans,
both in America and Asia. They have opened a new office in New York, while a
tour to China in the summer of 2015 was preceded the launch of an official
online store and a content sharing agreement with Chinese state broadcaster
CCTV.

Where Bayern (and other German clubs) have lost out is in
broadcasting revenue. Their total of €106 million in 2014/15 was not too bad,
but it was only around half of the€200
million earned by Real Madrid and Barcelona, who benefited greatly from their
individual domestic deals. It was even behind the likes ofManchester United, Tottenham Hotspur and
Everton, even though none of those clubs managed to qualify for the Champions
League.

More encouragingly, Bayern grew their broadcasting income by
39% (€42 million) to €148 million in 2015/16 with increases coming from both
the Bundesliga (€21 million) and the Champions League (€16 million).

The increase in Bundesliga distribution to €72 million was
largely due to Bayern’s successful performances in international club
competitions over the previous five seasons and the resulting improvement in their
UEFA coefficient ranking, as well as the increase in income from international
TV rights.

TV revenue in Germany is divided among clubs via a points
system, which ranks clubs proportionate to their league positions over the past
five seasons. Performance is weighted in favour of the more recent years, so
last season a factor of 5 was applied to 2014/15, 4 to 2013/14, 3 to 2012/13, 2
to 2011/12 and 1 to 2010/11.

However, a form of equality is then applied, as the club
with most points from this algorithm only receives twice as much money as the
club that has the lowest number of points. In this way, Bayern received €40
million in 2015/16, while bottom club Darmstadt received €20 million.

Nevertheless, television income is not very high in Germany,
as can be seen from the 2014/15 Money League, where Bayern were only 12th,
Borussia Dortmund 18th and Schalke 20th. Rummenigge said, “It’s a dramatic
disadvantage. The DFL has to make sure the German top clubs remain competitive
among the elite teams in Europe.”

To place the Bundesliga TV deal into context, Aston Villa,
who finished last in the Premier League in 2015/16, received around €80 million
TV money, which was higher than the €72 million Bayern received for winning
their league.

It is therefore good news that the Bundesliga recently
announced a new domestic TV rights deal with Sky and Eurosport for the four
years from 2017/18 to 2020/21, which will significantly increase the money by
85% from €2.5 billion to €4.6 billion, working out to €1.160 billion a season.
As the league advised that total rights would be worth €1.4 billion, that
implies that the international rights will also rise to €240 million a season.

According to projections, Bayern’s share of the TV revenue
should rise to around €100 million a season (though the distribution model will
also change), but this is still a lot less than the money earned in England.
The new Premier League deal is likely to deliver €150-200 million to the top
four English clubs, depending on the Euro exchange rate.

The new Bundesliga total of €1.4 billion will take it ahead
of Serie A (€1.2 billion) and Ligue 1 (€0.8 billion), but they will still lag
behind La Liga (€1.5 billion) and obviously be miles below the Premier League
(€3.4 billion).

It is also worth noting that these TV rights cover the two
top German leagues with 80% of the domestic deal going to Bundesliga 1 and 20%
to Bundesliga 2.

However, the Bundesliga’s chief executive, Christian
Seifert, noted, “We are now number two behind the Premier League (in terms of
domestic rights).” Although he described the TV market as challenging, Seifert
did emphasise the growth prospects: “Germany is the biggest single market in
Europe, but pay TV still does not have the market position of other countries.
There is a lot of potential though.”

Some believe that the relatively low amount paid for
international rights can be ascribed to Bayern’s dominance, which has made the
league boring, but Seifert argued that overseas interest was not purely in the
title winners: “Last year we saw very competitive games to decide who will play
in the Champions League, who will play in the Europa League or relegation.”

The news is much better for Bayern in Europe, where they
received €64 million for reaching the semi-finals in the Champions League. That
said, it was still less than four clubs who did not progress as far as Bayern,
i.e. Juventus, Paris Saint-Germain, Chelsea and Roma, thanks to the more
beneficial TV pools in Italy, France and England.

A club’s share of the market pool is based on the value of
the national TV deal and the number of clubs from that country who reach the
group stages. Thus, Bayern are adversely impacted by Germany’s €68 million TV
pool being less than half England’s €143 million, while Italian and French
clubs benefited from only two clubs reaching the group stage.

Half then depends on the progress in the current season’s Champions
League, while half depends on the position that the club finished in the
previous season’s domestic league (1st place 40%, 2nd place 30%, 3rd place 20%
and 4th place 10%).

As a result, Bayern only received €26 million from the TV
pool in 2015/16, even though they reached the Champions League semi-final,
compared to Juventus €53 million, Roma €48 million, Manchester City €46
million, Chelsea €45 million and PSG €40 million.

Little wonder that Bayern are strong supporters of
UEFA’sproposed change in the TV pool
distribution system, so that each country will retain much less from its
national TV deal than the current arrangement (reportedly down from around 50%
to 15%) with the vast majority going into the central plot in future. With a
completely straight face, Rummenigge observed, “I am pleased that we have
managed to reach quick and simple decisions for the good of football.”

Despite the disadvantages of the TV pool, the Champions
League has still been a lucrative revenue stream for Bayern in recent times, earning
them €256 million in the last five season, around €100 million more than
Dortmund in the same period.

The other German clubs were even further behind: Bayer
Leverkusen received €117 million, Schalke €101 million, Wolfsburg €61 million
and Borussia Mönchengladbach €39 million.

Bayern’s match day income rose 13% (€12 million) from €90
million to €102 million in 2015/16, partly due to the capacity at the Allianz
Arena being raised to 75,000 in the second half of the 2014/15 season.

Their average attendance was only below Dortmund’s
incredible 81,178 in Germany, though a fair way ahead of Schalke 61,386. In
Europe, Bayern were only surpassed by Barcelona 78,250 and Manchester United
75,300, but ahead of Real Madrid 67,700.

Despite Germany’s reputation for low ticket prices, Bayern’s
match day revenue of €90 million was actually the sixth largest in the world in
2014/15, even before last season’s increase, though the likes of Arsenal, Real
Madrid, Barcelona and Manchester United all generate €115-130 million.

In fairness, the Bundesliga only has 18 clubs, so Bayern
play two fewer home matches a season compared to the other major leagues. Their
average revenue per match of €3.6 million is substantially more than any other
German teams (Dortmund €2.5 million, Schalke €1.9 million), but is still a fair
way below the money earned by Manchester United (€5.4 million) and Arsenal
(€4.9 million).

Bayern’s wage bill rose 15% (€33 million) from €227 million
to €260 million in 2015/16, but the wages to turnover ratio still fell to a
very impressive 44%, the lowest for many years, following the significant
revenue growth, and way below the 50% targeted by the Bundesliga.

Again, it is interesting to contrast the wage bill with
Dortmund, whose €140 million is around half as much as Bayern’s, despite a 19%
increase in 2015/16. In fact, the €120 million gap between Bayern and Dortmund
is as high as it has ever been. In fairness to the Bavarians, their revenue is
also substantially higher, but that does not make it any easier for Dortmund
(or anyone else) to compete.

Using the same exchange rate as Deloitte’s Money League,
Bayern had the 8th highest wage bill in world football in 2014/15, along with
one of the lowest wages to turnover ratios (only beaten by Dortmund in the top
15 clubs).

However, that gap should be much smaller now, as the wage
bills at the English clubs will be impacted by the weakness of Sterling. It
should also be noted that the Spanish giants’ figures are inflated by sports,
such as basketball and handball.

The other staff cost, player amortisation, rose 15% (€9
million) from €61 million to €70 million. This has sharply grown from €33
million in 2011, reflecting Bayern’s increasing activity in the transfer
market.

However, this is still not particularly high for a leading
club. As a comparison, player amortisation at big spending Manchester United
and Real Madrid is over €100 million. That said, it is considerably higher than
the €32 million booked by Dortmund.

To explain this concept, transfer fees are not fully
expensed in the year a player is purchased, but the cost is written-off evenly
over the length of the player’s contract. As an example, Mats Hummels was
reportedly bought from Dortmund for €35 million on a five-year deal, so the
annual amortisation in the accounts for him will be £7 million.

Traditionally, Bayern Munich have been the big spenders in
the German transfer market, often acquiring the strongest players from rivals,
e.g. Mario Götze, Robert Lewandowski and Hummels from Dortmund; Manuel Neuer
from Schalke.

However, Rummenigge was keen to emphasise the club’s two
pillar system: “We sign crucial players like Robert Lewandowski and Arjen
Robben, but we also aspire to nurture our own talents.”

That may be the case, but Bayern’s outlay on players has
been on the rise: averaging €31 million 2005-09; €53 million 2009-13; and up to
€68 million 2013-16. Recruitment has been good with the club bringing in the
likes of Arturo Vidal (Juventus), Douglas Costa (Shakhtar Donetsk), Joshua
Kimmich (Stuttgart), Mehdi Benatia (Roma), Juan Bernat (Valencia) and Xabi
Alonso (Real Madrid).

However, the net spend has actually fallen in the last four
seasons: from €44 million to €24 million, as Bayern have earned good money from
the sales of Kroos, Mandzukic, Götze, Luiz Gustavo, Mario Gomez, Hojberg,
Shaqiri and Rode.

Despite these sales, Bayern’s net spend of €95 million over
the last four years is still miles higher than almost all other German teams –
with one important exception, as new boys RB Leipzig have actually spent most
in the Bundesliga with a cool €100 million in this period.

To show how far ahead these two clubs are, the next highest
spending clubs (on a net basis) have shelled out less than half: Hamburg €43
million and Dortmund €42 million. In fact, over the last four years no fewer
than eight Bundesliga clubs had net sales, as opposed to spend. Moreover, all
other Bundesliga clubs combined only spent a net €78 million – less than either
Bayern or Leipzig.

Although the football club has had no debt for a while, the
group did have debt from the Allianz Arena company, which was used to finance
the stadium, though this was paid off 16 years ahead of schedule. As Rummenigge
explained, “In 2005 we borrowed exactly 346 million euros in a 25-year plan,
which was meant to last until 2030. Now we have paid the stadium off after only
nine years. I'm very proud of that.”

This meant that bank debt was completely eliminated in 2014,
having been as high as €167 million in 2009. At the same time cash balances
have been over €100 million for the last few years.

We will not know whether this is still the case in 2015/16
until the detailed accounts are published, but we can see that current assets
(including cash) have risen by 29% (€51 million) to €227 million, so the
chances are that cash has increased. On the other hand, total liabilities
(including debt) have also grown 67% (€68 million) to €171 million.

The (early) clearing of the debt is undoubtedly a splendid
achievement, as recognised by former Bayern great Paul Breitner, “Bayern are
self-sufficient. We are independent and we are the only major club in the world
that does not have any debts and is in a secure financial situation.”

Again, we will have to wait for Bayern’s detailed accounts
to see a cash flow statement, but the club’s power can be seen from previous
reports. In the ten years up to 2015 Bayern generated €540 million of cash from
operating activities. However, they were also boosted by €200 million from new
share capital.

Unfortunately, Bayern do not analyse their €475 million net
investment in assets between players and infrastructure, but it is likely that
the vast majority of this expenditure has been for improving the squad.

What is notable is that more than a quarter of a billion
Euros was used to repay loans. Another €35 million was used to pay dividends,
an increasing trend. In fact, the next dividend payment has been increased to
€12 million, up from €7.5 million.

Now that the stadium debt has been repaid, it has given
Bayern even more cash to spend on transfers. It is not entirely clear exactly
how much more, but Uli Hoeness once claimed that they would have an additional
€25 million budget each year once the debt had been cleared.

Hoeness is once again Bayern president, having been elected
unopposed at the recent AGM. He had resigned in February 2014 after being found
guilty of tax avoidance via an undeclared Swiss bank account, though he was
released after serving half of his prison sentence dueto good behaviour.

"Street Fighting Man"

Bayern make great play of their independence with Breitner
saying, “We do not need any sheikhs or oil tycoons.” Deputy chairman Dreesen
sang from the same sheet: “We pay everything through our own efforts. The main
thing is we’re one of the very, very few clubs at the top of Europe that are
completely independent.”

That said, there is little doubt that the club’s strategic
shareholders have been instrumental in the club’s success, developing a
virtuous circle, whereby each Bayern trophy means more sales for the sponsor
(especially Adidas), which in turn means more money for Bayern. Not to mention
the funding made available by direct investment, such as Audi paying €110
million for an 8.33% stake in 2014.

Perhaps the biggest threat to Bayern’s position in Germany
is the way clubs have started to get round the“50+1” rule, which dictates that members must own a minimum of 50% of
the shares plus a deciding vote, theoretically preventing a club from being
subject to the whims of an individual owner and taking on excessive debt.

"Look Sharp!"

However, RB Leipzig, owned by Austrian energy drink
manufacturer Red Bull, have implemented a scheme whereby a member must pay €800
a year (compared to Bayern’s €60) and they reserve the right to reject any
application without justification. This means that Leipzig only have 17 members
(and most of them are Red Bull employees) compared to 284,000 at Bayern.

This may not break the letter of the rule, but it is clearly
against the spirit, though what other option does an “upstart” club have if it
wants to mount a genuine challenge to Bayern’s financial dominance?

Though not entirely convincing, Hoeness seemed to welcome
the emergence of RB Leipzig, “The more I think about it, it is good to have
really good rivals. Good for us and the competition.”

"Calling Captain Autumn"

Captain Philippe Lahm followed a similar line after Bayern’s
recent defeat to Dortmund, though his remarks were heavily laced with sarcasm:
“It’s wonderful for the league, exactly what everybody had wished for.”

This was a reference to people becoming fed up with the
predictability of Bayern winning the Bundesliga. Indeed, before he knew he was
joining, Ancelotti had observed, “Bayern win the league with their hands in
their pockets.”

A large part of that success has been due to their financial
strength, as acknowledged by Dreesen: “FC Bayern is in outstanding shape,
operating at the highest Champions League level in financial terms. Our club is in a superb position. That’s been the case for the last few years,
and that's more than ever true for 2016. Our entrepreneurial objective is the
maximisation of sporting success alongside financial prudence.”

He added, “Our increasing financial power will be used
primarily to make the regular investments required in our first-team squad in
order to ensure we remain competitive among the elite teams in Europe.”Bayern’s appetite for more Champions League success is obvious,
as Rummenigge admitted, “We long for it.” Whether they have enough firepower to
win again in Europe is another question. Their excellent 2015/16 financial
results will certainly do their prospects no harm, but it will still be
difficult for Ancelotti to add to his three (managerial) victories in Europe’s
flagship tournament.

Praise for The Swiss Ramble

"Blogger of the Year 2013 - It’s testament to the effect that Kieron has had on the blogosphere that so many fans take his word as gospel. Putting to use his career in the world of finance, his insights into balance sheets and simple explanations of complex ideas appeal to the hardcore financial whizz and casual fan alike." - The Football Supporters' Federation